Pricing and inflation

Identifying the factors that influence inflation dynamics is crucial to understanding the transmission and propagation of economic shocks and to improving the capacity of monetary authorities to fight recessions.

Customer-business relationships play an essential role in setting prices, and therefore affect inflation, yet this dynamic has received little attention from economists. Nicolas Vincent, a researcher in the Institute of Applied Economics at HEC Montréal, took a close look at this phenomenon.

Customer-business relationships play an essential role in setting prices, and therefore affect inflation.

His work has provided a better understanding of the factors that influence the decisions of firms to change their prices, and consumer reaction to such changes. Research conducted jointly with Oleksiy Kryvtsov, Director in the International Economic Analysis Department of the Bank of Canada, showed that the methods used by statistical agencies to measure inflation are potentially problematic, because they ignore the fact that, during recessions, consumers tend to seek out products at lower prices.

Another research project, carried out with Jean Boivin, Deputy Governor of the Bank of Canada, and Robert Clark, a researcher in the Institute of Applied Economics at HEC Montréal, examined the question of price differences between Canada and the United States. This topic has been extensively written about in Canada, and is a source of frustration for many Canadian consumers who find that the same product costs more in Canada than in the U.S., even when the two currencies are at parity.

Vincent's work has led to the publication of articles in the Journal of Air Transportation Management and the Journal of International Economics, and an article co-written with two researchers from the U.S. Federal Reserve, published in NBER Macroeconomics Annual. He has also presented lectures in Canada, the United States, Norway and France.